COMPENSATION AS MOTIVATOR

Introduction

There are many work motivators, including

 promotions
 desirable work assignments
 peer recognition
 work freedom

but the focus in this chapter is pay.

they all help maintain employee commitment

Rewards Review
Intrinsic Extrinsic

Financial Non-financial
participation in
decision making

Performance Implied Explicit assigned

greater job based membership-based membership-based parking space
freedom
preferred
cost of living protection
more bonuses assignments
increase Program
responsibility
business
labor market pay for time
opportunities piecework cards
adjustment not worked
for growth
own
services/
diversity commission profit sharing secretary
perks
of activities
impressive
incentive time-in-rank title
plans increase

merit pay
plans
Types of Reward Plans

Intrinsic versus Extrinsic Rewards

intrinsic rewards (personal satisfactions)

come from the job itself, such as:
 pride in one’s work
 feelings of accomplishment
 being part of a work team

extrinsic rewards come from a source

outside the job, mainly by management:

 money
 promotions
 benefits
Types of Reward Plans

Financial versus Nonfinancial Rewards

financial rewards:
 wages
 bonuses
 profit sharing
 pension plans
 paid leaves
 purchase discounts
nonfinancial rewards:
 make life on the job more attractive;
employees vary greatly on what types they like
Types of Reward Plans

Performance-based versus Membership-Based

 performance-based rewards are tied to specific job

performance criteria
 commissions
 piecework pay plans
 incentive systems
 group bonuses
 merit pay

 membership-based rewards such as cost-of-living

increases, benefits, and salary increases are offered
to all employees
Compensation Administration

Companies derive their compensation programs

from job evaluation, which defines the appropriate
worth of each job.
An effective, fair compensation program
attracts motivates retains
competent employees.

Both employees and employers

can research compensation
facts and issues at
www.salary.com
http://salary.nytimes.com/
http://www.salaryexpert.com/
Compensation Administration

The Fair Labor Standards Act requires

 minimum wage
 overtime pay
 record-keeping
 child labor restrictions

exempt employees nonexempt employees

include professional and eligible for premium pay
managerial employees (time and one-half)
not covered under when they work more than
FLSA overtime provisions 40 hours in a week
Compensation Administration

Equal Pay Act of 1963 requires that men and

women hired for the same job be paid the same.

Civil Rights Act:

 broader than Equal Pay Act
 prohibits discrimination on the basis of gender
 used to support comparable worth concept
 salaries established based on skill,
responsibility, effort, and working conditions
Job Evaluation and the Pay Structure

Job evaluation helps set pay structure.

Job analysis information determines the relative value, or

rank, of each job in the organization.

Other pay structure factors:

labor market conditions

collective bargaining
individual skill differences Research wage information at
the Bureau of Labor Statistics
http://www.bls.gov/bls/blswage.htm
Job Evaluation and the Pay Structure

External factors also influence pay structure.

geographic differences (local supply and demand)

labor supply (low supply = higher wages and vice versa)

competition (HR can match, lead, or lag)

cost of living

collective bargaining (unions)

employees must know how the pay structure is derived

Special Cases of Compensation

Incentive Compensation Plans

individual organization-wide

group

incentives can be added to the basic pay structure to

provide rewards for performance
Special Cases of Compensation

Individual Incentives

merit pay plans (annual increase, based

on performance)

piecework plans (pay based on number

of units produced typically in a specified
time period)

time-savings bonuses and commissions

these work best where clear objectives are set and tasks are
independent
Special Cases of Compensation

Group Incentives
Incentives can be offered to groups, rather than individuals, when
employees' tasks are interdependent and require cooperation.

Advantages Disadvantages

Focuses the group on specific Can be costly to install and administer.

performance targets.
Since rewards are controllable by
individuals, the programs can be very
motivational.
The program can be integrated with other
corporate initiatives and leads to improved
communication and employee relations
De-emphasizes individual performance,
which can result in excessive peer pressure.
Requires open communication with
employees on costs, profitability, etc. If the
performance targets are not carefully
selected, adverse results may occur.
See:
http://www.hrdm.net/en/group_incentive.htm
Special Cases of Compensation

Paying for Performance

 Competency-based compensation
 Rewarded for skills, knowledge and behaviors
 leadership
 problem solving
 decision making
 strategic planning

 Broad-banding: pre-set pay levels that determine

what people are paid based on their type and level
of competency.
Special Cases of Compensation

Team-Based Compensation

 incentives for empowered work teams to exceed

established goals and share equally in rewards

 depends on:
 clarity of team purpose and goals
 ability of the team to obtain needed resources
 effective team communication skills and trust
Executive Compensation Programs

Supplemental Financial Compensation

deferred bonuses – paid to executives over

extended time periods, to encourage them to stay
with the company

stock options – allow executives to purchase

stock in the future at a fixed price

hiring bonuses – compensate for the deferred

compensation lost when leaving a former
company
Executive Compensation Programs
Supplemental Nonfinancial Compensation Perquisites

club
memberships paid life insurance
free financial, legal and
tax counseling
supplemental
retirement accounts

interest-
free loans
perks may postretirement
include consulting contracts

mortgage assistance

expense accounts

company cars supplemental

disability insurance
Executive Compensation Programs

Supplemental Nonfinancial Compensation Perks

 Golden parachutes protect executives when a

merger or hostile takeover occurs by providing
severance pay or a guaranteed position.
International Compensation

International compensation packages generally

utilize the “balance-sheet approach,” using these
four factors:
 base pay: the pay of employees in comparable jobs at home
 differentials: compensation given to offset higher costs of
living abroad
 incentives: inducements given to encourage employees to
accept overseas assignments
 assistance programs: payment for expenses involved in
moving a family abroad and in providing some services
overseas

HR needs to understand the statutory requirements of each country

Fill-in-the-blanks

1. _________ rewards come from the job itself; _________ rewards come
from outside the job.
Intrinsic; extrinsic
2. Wages, bonuses, and pension plans are examples of _________ rewards.
financial
3. The ___ _________ is the source of companies’ compensation programs.
job evaluation
4. Scanlon and IMPROSHARE are examples of ____________-____
incentives.
organization-wide
5. Using pre-set pay levels that determine what people are paid based on
their type and level of competency is called ______-_______.
Broad-banding
6. _____ _________ protect executives when a merger or hostile takeover
occurs by providing severance pay or a guaranteed position.
Golden parachutes